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ITEM 1A. Risk Factors
Natural gas and oil prices fluctuate widely, and lower prices for an extended period of time are
likely to have a material adverse effect on our business.
Our revenues, operating results, profitability and ability to grow depend primarily upon the prices we
receive for the natural gas and oil we sell. We require substantial expenditures to replace reserves, sustain
production and fund our business plans. Lower natural gas or oil prices can negatively affect the amount of
cash flow available for capital expenditures and our ability to borrow money or raise additional capital and, as a
result, could have a material adverse effect on our financial condition, results of operations and reserves. In
addition, lower prices may result in ceiling test write-downs of our natural gas and oil properties. We urge you
to read the risk factors below for a more detailed description of each of these risks.
Historically, the markets for natural gas and oil have been volatile and they are likely to continue to be
volatile. Wide fluctuations in natural gas and oil prices may result from relatively minor changes in the supply of
and demand for natural gas and oil, market uncertainty and other factors that are beyond our control, including:
domestic and worldwide supplies of natural gas, oil and natural gas liquids, including U.S. inventories
of natural gas and oil reserves;
weather conditions;
changes in the level of consumer demand;
the price and availability of alternative fuels;
the availability, proximity and capacity of pipelines, other transportation facilities and processing
facilities;
the level and effect of trading in commodity futures markets, including by commodity price speculators
and others;
the price and level of foreign imports;
the nature and extent of domestic and foreign governmental regulations and taxes;
the ability of the members of the Organization of Petroleum Exporting Countries to agree to and
maintain oil price and production controls;
political instability or armed conflict in oil and natural gas producing regions; and
overall domestic and global economic conditions.
These factors and the volatility of the energy markets make it extremely difficult to predict future natural
gas and oil price movements with any certainty. Further, the prices of natural gas and oil do not necessarily
move in tandem. Because approximately 90% of our reserves at December 31, 2010 were natural gas
reserves, we are more affected by movements in natural gas prices.
Our level of indebtedness may limit our financial flexibility.
As of December 31, 2010, we had long-term indebtedness of approximately $12.6 billion, and our net
indebtedness represented 45% of our total book capitalization, which we define as the sum of total
Chesapeake stockholders’ equity and total current and long-term debt less cash. We had $3.706 billion of
outstanding borrowings drawn under our revolving bank credit facilities at December 31, 2010.
Our level of indebtedness affects our operations in several ways, including the following:
a portion of our cash flows from operating activities must be used to service our indebtedness and is
not available for other purposes;
we may be at a competitive disadvantage as compared to similar companies that have less debt;
the covenants contained in the agreements governing our outstanding indebtedness and future
indebtedness may limit our ability to borrow additional funds, pay dividends and make certain
investments and may also affect our flexibility in planning for, and reacting to, changes in the economy
and in our industry;
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